Sorry, Shale. Iraq Is The Real Oil Revolution

After pushing up domestic crude oil production by about three million barrels a day (mb/d) in the United States, shale oil has inspired speculation about radical shifts in the global oil market.

Radical shifts are certainly on the horizon, but something other than shale is likely to be driving them. That something is Iraq.

Iraq is ramping up oil-exports in 2014, according to the Economist Intelligence Unit. The draft budget anticipates average exports of 3.4 mb/d, marking a nearly 30% increase from 2013 export levels.

Considering the political struggle between Baghdad and the semi-autonomous region of Kurdistan, the budget forecast seems bullish but not beyond the realm of possibility. New sources of production in the south are coming on-stream and infrastructure bottlenecks are easing.

Iraq is currently the world's third-largest oil exporter. and has the resources and plans to increase rapidly its oil and natural gas production as it recovers from three decades punctuated by conflict and instability.

"The emergence of Iraq as an oil power of the nature of Saudi Arabia is the big thing in the future of the oil business," said Henry Groppe, a seasoned oil and gas analyst from Texas, in an interview on Wednesday with Toronto's Globe & Mail. "It dwarfs everything else. It's the thing that everybody ought to be watching and following as closely as possible." increase of the post Saddam era

Oil exploration efforts in the post Saddam era have suggested that Iraq's oil resource is much bigger than analysts had previously anticipated.

International oil companies have already secured contracts that imply an epic increase in Iraq's oil production capacity by 2020.

"Reaching output in excess of 9 mb/d by 2020 would equal the highest sustained growth in the history of the global oil industry," the InternationalEnergy Agency concluded in the 2012 Iraq Energy Outlook.

The barriers to achieving these admittedly ambitious targets are as big as they are diverse, including everything from infrastructure inadequacies and skilled labor shortages to financial risks and lack of security.

While it is questionable whether Iraq will be able to meet this ambitious target, increasing Iraq's oil production by half of that target would make Iraq the largest contributor to global supply growth over the next 20 years and on course to displacing Russia as the world's second-largest oil exporter by 2030.

In any scenario, Iraq is the primary force affecting the long-term outlook for oil markets.

"Almost every second barrel of world oil production growth in the next two decades will come from Iraq, with the potential to provide prosperity for all of Iraq's 32 million people," said Dr. Fatih Birol, the lead author of the IEA's report in 2013.